Mom-and-Pop Shops

EXECUTIVE SUMMARY

SMALL BUSINESSES ARE THE CORE of U.S. enterprise—70%—and the backbone of the small and local CPA firm market. Stresses caused by the rapidity and degree of change in the business world and the culture at large are putting pressure on CPAs to provide them with an ever-more-complex range of skills and services and to make themselves more available. CPAs CAN HELP MOM-AND-POP companies with a range of management activities, from measuring business performance to finding executive-level talent to analyzing billing and collection procedures to advising family-owned business how to share the profits or set compensation. FAMILY-OWNED BUSINESSES HAVE critical and unique estate tax issues and need advanced tax and succession planning and other strategic advisory services such as investment management, maintaining solid relationships with banks or finding alternative financing. SMALL BUSINESS CLIENTS NEED to pay more attention to their overall investment picture, including personal and business assets. Their retirement plans will depend on everything from real estate (and plant, property and equipment) to debts and mortgages. DEMAND FOR BASIC COMPLIANCE services is tailing off as clients increasingly automate, but they need legitimate tax planning and clear development goals. RETAINER BILLING LETS A FIRM BUNDLE tax returns with outsourced financial management services, which ranks third among functions a small business is most likely to seek after legal services and computer support.

RICK TELBERG is editor at large and director of online content for the AICPA and his views, as expressed in this article, do not necessarily reflect the views of the Institute. Official positions are determined through certain specific committee procedures, due process and deliberation.

merica’s mom-and-pop shop owners form the core of U.S. enterprise—70% of all U.S. businesses, according to the Census Bureau—and the backbone of the small and local CPA firm market. Stresses caused by the rapidity and degree of change in the business world and the culture at large are putting pressure on them and their CPAs, who must provide an ever-more-complex range of skills and service. For instance, small businesses worried about profitability may ask their accountants to help identify and control expenses or to record and measure key returns on investment. Similarly, solutions to their customer-service and getting-new-customer concerns may involve customer-relationship-management systems, forecasting and budgeting procedures or measuring marketing effectiveness. Here are 15 pointers for improving CPA service to the mom-and-pop sector and helping practitioners build business.

Tip 2: Listen attentively when they talk about unusual operational issues. Joe Whitley in Montrose, Colorado, has worked both sides of the CPA fence. Until a few years ago, he was a practicing CPA. Today, as the owner of a sign-painting business, he’s his own client. Recently, environmental regulations required him to spend a whole day accounting for every last bucket of paint—more government compliance than he cares for. “It’s a nightmare,” he says of the process. However, it highlights something he wishes he’d paid more attention to when he was a practitioner: understanding small-shop rules and regulations. “I would have liked to have had this knowledge before I went into public accounting,” says Whitley, who feels it would have made him a better adviser. “In practice, I didn’t always listen carefully enough to clients. Small business has operational problems I never fully considered.”

Tip 6: Think and act like a long-term business partner and friend. New Albany, Indiana, CPA and lawyer Linda Christiansen says working with small business clients in a small town has led to long-lasting relationships. Christiansen, also a professor at Indiana University Southeast, says, “Small business clients are less sophisticated in finance and accounting, but they know their own businesses very well.” She exerts herself to offer detailed alternatives when her clients urge her to think like an owner, asking her, “What would you do if this was your company?” She recognizes their enterprises are “more than just a job to them.”

“The bank wanted to know who his customers were and how much each was worth,” Pirolli says. It was a challenge to explain the enterprise to them: “Financial statements don’t convey the business relationships that are important to my client’s success.” About expressing a business’s more subtle operative factors, he says: “You have to be a lot smarter these days.”

Tip 8: Look at the whole client, from business operations to personal net worth. Bruce Kirkpatrick, CPA, might agree with Pirolli. A principal in two-partner Kirkpatrick & Bertrand, Denver, he chides CPAs for not doing more than numbers-only services. “We’ve fallen short when it comes to understanding clients’ operations,” Kirkpatrick says. Accordingly, he has launched a service to analyze billing and collection procedures for the medical clients in his practice. Kirkpatrick says he urges clients to pay more attention to their overall investment picture, including both personal and business assets. “You have to look at a client’s investment in his business and in his retirement plan,” he says. “That includes everything from real estate (and plant, property and equipment) to debts and mortgages.”

Tip 10: Consider a diversified practice of related entities. Adamson’s firm organizes fixed-price packages for clients and—because it owns and operates related ventures in mergers and acquisitions, investment management and retirement plan administration—it offers a range of services to small business owners, including personal and corporate tax, personal financial planning and pension plan administration. “If we can pick up a company’s 401(k) plan,” says Adamson, of developing new business from existing clients, “we can bundle it with tax returns and put more clients on what we call ‘retainer’ billing.”

“There’s a lot of psychology involved,” says Bonfanti. “When people have to be pushed to do more than they’re comfortable doing, we need to be counselors. Sometimes you have to ask the owner again and again, ‘Why did you start this business?’ The answer, ultimately, is to sell it or transfer it.” With persistent Socratic questioning, Bonfanti nudges clients into thinking strategically about growth, profitability and business valuation—all links in the value chain where the firm can ply its trade.

Tip 14: Remember that small business is family business. Bonfanti knows Hoskins, at age 53, is too young to think about retiring, but with a son and daughter in the business, he has issues and opportunities that span decades. “At the Fortune 500,” Hoskins says, “I was just looking at making my numbers every quarter. But, when you work in your own business, you think about the next generation.” Today Bonfanti is on Hoskins’s board of directors and is a trusted adviser to the Hoskins family. With a little luck—for both of them—Bonfanti will be there for Hoskins’s succession plan, too.

Tip 15: Respect the fact that mom-and-pop shops are a breed apart. CPAs find that small business owners are an optimistic group. Ample capital, good employees, a solid educational background and strong personal motivations such as a desire for freedom to lead a rich family life or being one’s own boss seem to prefigure their success, says a Small Business Administration (SBA) study. Still, only about half of all new small businesses survive past four years. Younger or underfinanced entrepreneurs are more likely to fail yet, paradoxically, about a third of those that close declare the experience worthwhile, says the SBA study. This may seem to fly in the face of common sense, but CPAs who serve mom-and-pop shops know that people get into business for many reasons. Staying there is what they need help with.